Is China’s belt and road infrastructure development plan about to run out of money?
State bankers warn that debt levels in host nations are far above recognised safety levels, and say more needs to be done to attract private investors
China’s ambitious plan to recreate the old Silk Road trading routes across Eurasia and Africa is facing a serious financing challenge, according to the country’s senior bankers and government researchers.
Speaking on Thursday at a forum in Guangzhou, capital of southern China’s Guangdong province, Li Ruogu, the former president of Export-Import Bank of China, said that most of the countries along the route of the “Belt and Road Initiative”, as the plan is known, did not have the money to pay for the projects with which they were involved.
Many were already heavily in debt and needed “sustainable finance” and private investment, he said, adding that the countries’ average liability and debt ratios had reached 35 and 126 per cent, respectively, far above the globally recognised warning lines of 20 and 100 per cent.
“It would be a tremendous task to raise funds for the countries’ development,” Li said.
China’s new central bank chief Yi Gang said on Thursday that Beijing was keen to work with international organisations, commercial lenders, and financial centres like Hong Kong and London to diversify funding sources for the plan.
Wang Yiming, deputy head of the Development Research Centre of China’s State Council, said at the forum that although many belt and road projects were funded by major financial institutions – including the Asian Infrastructure Investment Bank, New Development Bank, China Development Bank (CDB), the Export-Import Bank of China and the Silk Road Fund – there was still a huge funding gap of up to US$500 billion a year.
The limited participation of private investors, narrow financing channels and low profitability levels were major problems, Wang said.
“Countries involved in belt and road projects have low financial capabilities and high liability ratios” he said. “It is important to encourage financial innovation to raise funds to support the development of the belt and road.”
He called for the creation of an international fundraising mechanism to attract private investors, and a separate system to measure the credit risks associated with each project.
Li said that private investors were also often put off by the complexity of having to deal with the different tax regimes, labour laws, customs clearance procedures and currencies of belt and road host nations.
To make the financing propositions more appealing, local governments should consider copying China’s model and offer preferential policies to foreign investors, he said.
Liu Yong, chief economist at CDB – the nation’s main policy lender – said the bank always considered the medium to long-term risks faced by Chinese companies involved in belt and road projects.
While there were “non-performing asset problems” with some schemes, they were “within our tolerance range”, he said.
The credit ratings of all countries and projects “were carefully and jointly evaluated”, he said.
On the issue of CEFC China Energy, one of CDB’s highest profile clients, which is in serious financial trouble after the disappearance of its chairman, Ye Jianming, Liu acknowledged the public concerns but declined to make any further comments.